The Government revealed yesterday that more than £1.8 billion in tax credits was overpaid to 1.9 million families in 2004/05.

He said the Chancellor had caused "hardship and distress" to low-income families forced to repay the credits.

"Through the incompetent administration of tax credits, the Chancellor has managed to make the tax affairs of the poorest in our society almost as complex as the tax affairs of the richest," he said.

"The latest news that almost £2 billion of these tax credits have been overpaid to two million people is bad news for the taxpayer, and even worse news for those low-income families who will suffer hardship and distress as that money is clawed back off them.

"The blame for our unfair, inefficient, complex and stealthy tax system lies squarely with the Chancellor and his obsessions with meddling and stealth."

He argued for a reduction in the cost of collecting tax, and for a tax system that is "transparent, simple, efficient and fair".

"The sheer complexity of the tax system is now having a real impact on Britain's competitiveness," he said.

"There are now enough tax inspectors in Britain to fill every seat in the Olympic Stadium in Berlin where the World Cup Final is going to be held - and you'd still have 30,000 waiting outside for tickets!"

Labour's Chief Secretary to the Treasury Stephen Timms said: "George Osborne seems to be totally confused. First he proposed a flat tax. Then he promised a combination of lower taxes and lower spending.

"Now he is promising lower spending on public services but no reduction in taxes, which is the worst of all worlds, and pledging to cut tax credits, which would make up to six million families worse off.

"The Tories will never gain trust of the British people if they continue to change their economic policy from one day to the next."